Abstract
This paper estimates to what extent proxy advice allows funds to vote as if they were informed. A fund’s vote is classified as “informed“ if the fund accessed the company’s proxy statement from the SEC’s Edgar website prior to voting. A fund’s proxy advisor, if any, is identified from the format of its Form N-PX filing. Our main finding, for the period 2004-2017, is that proxy advice did not result in funds voting as if they were informed – more often than not it pushed them in the opposite direction – and this distorting effect was particularly noticeable for ISS. The finding is robust to several strategies designed to control for endogeneity of acquiring information and seeking proxy advice, including fixed effects and instrumental variables. We also show that advice distorted votes toward policies favored by socially responsible investment (SRI) funds, and provide suggestive evidence that proxy advisors slanted their recommendations toward the preferences of SRI funds because of pressure from activists.
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